The Chancellor announced measures on Research & Development relief, Seed EIS, and extending Cultural Tax reliefs for Corporation Tax in his Spring 2023 Budget.
Research & Development (R&D)
Additional Tax Relief for R&D intensive Small and Medium-sized enterprises (SMEs).
From 1 April 2023:
- An increased tax credit of 14.5% will be available for loss-making SMEs that are R&D intensive.
- An R&D-intensive company is one with a qualifying expenditure to total (tax-adjusted) expenditure (intensity) ratio of 40% or more.
The credit available currently is decreasing from 14.5% to 10% from 1 April 2023. For R&D-intensive companies, the credit will remain at 14.5%.
There will be draft legislation and guidance will be released later in the year. There will also be a further explanation as to what constitutes an 'R&D intensive' company. When assessing the intensity ratio the whole accounting period will be taken into consideration, even where this falls partly before 1 April 2023.
As the legislation is not yet enacted, companies who think they will qualify will need to either delay claims or submit a claim for the reduced 10% and amend this at a later date. Normal time limits will apply.
The new measure will be accompanied by targeted anti-avoidance rules.
- Policy paper: Technical note: Additional tax relief for Research and Development intensive small and medium enterprise
Reform of Research & Development Relief
Further, previously announced measures, have been confirmed.
From 1 April 2023:
- The scope of qualifying expenditure will be extended to include datasets and cloud computing.
- In an attempt to combat abuse, companies will need to inform HMRC in advance if they intend to make an R&D claim.
- This will be supplemented by a compulsory additional information form that will need to be submitted with all claims from 1 August 2023.
From 1 April 2024:
- Previously announced restrictions on overseas expenditure will now have effect from 1 April 2024 and not 1 April 2023 as previously announced. This is to allow further consideration of the interaction of this measure and the proposed merger of the SME relief and RDEC regimes.
These announcements were made during the Autumn Statement 2021 and will be legislated for in the Spring Finance Bill 2023.
- Policy paper: Reform of Research and Development Tax reliefs
Corporation Tax main rate amendment for Patent Box
From April 2023
- Spring Finance Bill 2023 to ensure that the Patent Box deduction formula refers to ‘applicable rate’ rather than ‘main rate’ of Corporation Tax so that the correct amount of relief is given under the Patent Box for claimants whose profits are subject to the small profits rate.
- See Patent Box – Corporation Tax main rate consequential amendment.
From January 2024:
- Amendments will be made to all eight creative tax reliefs in order to remove unintended consequences and improve compliance: Film relief, High-end TV relief, Children's TV relief, Animation TV relief, Video Game relief, Theatrical Productions relief, Orchestral Concerts relief and Museum and Gallery Exhibitions relief.
- An anti-abuse measure on connected party payments will also be introduced.
From 1 April 2023:
- The tapering down of three cultural reliefs will be delayed for two years.
- The rates of relief for Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibition Tax Relief (MGETR) will remain at 50% or 45% (for non-touring TTR and MGETR) until 1 April 2025.
- The sunset clause on MGETR will also be postponed for two years. Expenditure will no longer qualify for relief from 1 April 2026.
The rates for these reliefs were increased on a temporary basis from 27 October 2021, in an effort to help the sector during the Covid-19 pandemic. After this two-year extension to the temporary increased rates, these will be tapered back down to the original rates. The tapering will take place in FY2025-26 and the original rates will apply from 1 April 2026.
- The tapered rates will be 35% and 30% (for non-touring TTR and MGETR).
- The original rates are TTR: 25%/20% and OTR: 25%.
The MGETR will be phased out by 1 April 2026.
- Policy paper: Two-year extension of higher rates for theatre, orchestra, and museums and galleries exhibition tax reliefs
- Policy paper: Extension of the Museums and Galleries Exhibitions tax relief (MGETR) sunset clause
From 1 April 2024:
- The definition of qualifying expenditure will no longer include expenditure on goods or services provided from within the EEA.
- Expenditure will need to be on goods or services used or consumed in the UK.
- The eligibility requirement will change from 25% to 10%.
- No new expenditure will be allowed to be claimed, although where productions have not concluded by 1 April, claims using the old definition will still be allowed.
This will be legislated for in Finance Bill 2023-24.
Reform of Film, TV and Video Game Tax Reliefs
From 1 January 2024:
- Relief will be available by way of expenditure credits, based on the RDEC.
- There will be two types of credit: one for the audio-visual reliefs (the four film and TV reliefs) and one for video games. Video games, film and high-end TV will have a rate of 34%. Animation and children's TV will have a rate of 39%.
- The slot length of a programme qualifying for High-end TV Relief under the new Audio-Visual Expenditure Credit will be reduced from 30 to 20 minutes.
- Video game expenditure qualifying for the new Audio-Visual Expenditure Credit will differ from the current definition. Qualifying expenditure for the credit will need to be on 'goods and services that are used or consumed in the UK'. This expenditure will also have to account for at least 10% of the total expenditure in order to qualify for the credit.
The relief will become a credit based on the qualifying expenditure and no longer based on an adjustment to taxable profit.
Existing productions will be able to opt into the relief from 1 January 2024. The existing relief will close to new productions from 1 April 2025. Any programmes that have not concluded principal photography and games that have not concluded development can continue to claim under the existing relief until 31 March 2027. For video games, the current EEA definition of expenditure will continue to apply in these cases.
Following the responses to the consultation announced at the Autumn Statement 2022, the reforms will be legislated for in Finance Bill 2023-24. Draft legislation will published in Summer 2023 for consultation.
Increased limits for the Seed Enterprise Investment Scheme
For shares issued on or after 6 April 2023 (and as previously announced in the Autumn Statement 2022):
- The company investment limit will increase from £150,000 to £250,000.
- The gross asset limit will be increased from £200,000 to £350,000 and the trading time limit increased from two to three years.
- The individual annual investor limit will be raised from £100,000 to £200,000.
Social Investment Tax Relief (SITR) expiry
From 6 April 2023:
- Following a previous two-year extension, the SITR scheme will close to new investment.
Community Investment Tax Relief (CITR) expansion
With effect from Spring 2023 (via Statutory Instrument):
- The limits to funds raised and deployed by accredited Community Development Finance Institutions through the CITR scheme, will be expanded.
Double Taxation Relief
With effect from 20 July 2022:
- Some extended time limit claims where the DTR is based on deemed foreign tax will now be prevented.
- This measure only relates to claims dating back to pre-2009 when the distribution exemption was introduced.
Policy paper: Double tax relief: time limit for claims
Spring Budget 2023: at a glance
The Chancellor, Jeremy Hunt made his Spring Budget 2023 speech on Wednesday 15 March. Highlights of the speech include a proposal to allow companies to expense Capital Allowances and to abolish the pensions Lifetime Allowance.